Government & Public Affairs

Litigation: Visa/MasterCard Lawsuit Information

November 17, 2003

Subject: VISA Check/MasterMoney Antitrust Litigation

Dear Member:

Enclosed is a merchant advisory prepared by Constantine and Partners, lead class counsel in the Visa/MasterCard antitrust lawsuit, informing merchants of their rights under the settlements in the case. I urge you to review the enclosure carefully because it will help you understand the factors that should be considered as you decide whether to accept or reject Visa and/or MasterCard debit cards while continuing to accept their credit cards. FMI is also preparing educational materials to help your employees understand the different payment options.

As the advisory states, retailers need to make their decisions to accept or reject Visa or MasterCard signature based debit cards independently. However, we all know that there are factors that put retailers at a serious disadvantage when negotiating with the credit card associations. Even the largest FMI members account for only a small percentage of the total sales handled by Visa or MasterCard. As a result of their market power, and marketing power, fees charged for credit and debit card transactions have ballooned into one of the largest uncontrollable costs many of you face every month, and as the use of credit and debit cards by consumers has grown, so have these payment costs.

Concern about these costs and the anticompetitive practices of Visa and MasterCard led FMI to join the lawsuit against Visa and MasterCard. The settlement, in addition to the monetary payments you will be receiving, allows for more freedom in the marketplace. The challenge facing us now is how we use that freedom to achieve the result of lower, or more cost-based fees. The costs to the financial institutions of processing supermarket transactions are lower than for other merchants and that fact has been recognized in current rate structures, although not to the appropriate extent. The reality is that:

• We are a very low margin business with exceptionally high traffic and a very large number of transactions daily.
• Fraud rates for supermarket transactions are very low.
• Our industry's transactions are among the simplest for the banks to handle.

Supermarket rates should reflect these realities. It's important that you reiterate these points as we move forward. Moreover, FMI intends to make those points forcefully as well and to bring them directly to Visa, MasterCard and others. In addition, we will explore opportunities that may exist for retailers to work together to obtain lower fees by aggregating supermarket volume or offering other efficiencies or benefits. We are hopeful that the new environment can lead to a new era of cooperation and innovation with the credit card associations. We urge you to work with us in this attempt and to share with us any questions or concerns. For more information, contact our staff expert, Joy Nicholas at (202) 220-0726.

Sincerely,

Tim Hammonds
President and CEO

Enclosure